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Τετάρτη 07 Δεκεμβρίου 2016
The lesson from Greece

The lesson from Greece: A 1930s-style depression creates 1930s-style politics


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It's never good when neo-Nazis who can't even campaign because their leaders are in jail for murdering a political opponent still manage to come in third in your elections.

That's what happened in Greece, though, after its mainstream parties discredited themselves by presiding over so much austerity that voters are willing to turn to quite literally anyone who promises to end it. That includes actual Nazis, crypto-Nazis, actual Communists, and former Communists like Syriza, who won power, though not an outright majority, with an unexpectedly strong 36 percent of the vote. It turns out that keeping a country in a 1930s-style depression creates 1930s-style politics.

Now let's back up. It's not like Greece needed any help getting itself into a depression. Its government borrowed too much money, lied about how much it was borrowing, and has such Kafkaesque regulations that starting a business or even hiring someone is, well, something of an odyssey. So when Greece had its Wile E. Coyote moment in 2010, there was always going to be a lot of economic pain. It had to cut spending and it had to regain competitiveness, whether or not Germany told it to. And the truth that nobody wants to hear is that Greece would have had to cut a lot more if not for all the "austerity" imposed on it, which was really a bailout that gave it more money than it would have otherwise had.

Austerity, in other words, isn't what Europe deserves blame for in Greece. Hard money is. Or, if you want to go all the way back, creating the euro in the first place when textbook economics said a crisis like this was inevitable if they did. We'll get there in a minute. First, though, let's talk about what "competitiveness" means. It's pretty simple, actually: It's how much you get paid for doing a certain amount of work. Greece's problem was that, in the aftermath of its government bubble, its wages were too high, relative to Germany's, for what its workers were doing. That realistically left it with three options. Either Greece could cut its wages while Germany kept its the same, Greece could keep its wages the same while Germany increased its, or they could meet somewhere in the middle. (The fourth option, which you can't really plan on, is that Greece's workers could have suddenly become a lot more productive).

This was the difference, for Greece, between, if not a Great Recession and a Great Depression, at least a Lesser Depression and a Great Depression. Think about it this way. People, you might have noticed, don't like taking pay cuts, so you have to fire them to get them to do so. But higher unemployment only lowers GDP, which makes debts harder to pay back. It's self-defeating. That, though, is what Europe chose for Greece. Germany, you see, is so afraid of the inflation under its bed that it would rather force Greece to adjust its wages all the way down than adjust its own wages any of the way up. That's why the ECB raised interest rates twice in 2011 to fight mostly-phantom inflation, and is only now about to start buying bonds on a large scale. It's no surprise, then, that German inflation isn't anywhere close to its just-below-2-percent target, but has instead fallen all the way to 0.1 percent—which means Greece needs negative inflation to regain competitiveness. And that's what it's gotten, with Greek prices now falling 2.6 percent. So Europe's tight money has more than undone the good from Europe's bailout. Indeed, Greece's economy has shrunk 27 percent, its unemployment rate has hit 28 percent, and its youth unemployment rate is over 50 percent.

Europe isn't panicking, though, because things are going according to plan. Or at least close enough. Any economist could have told them, and plenty of them did, that something like this was bound to happen if countries share monetary, but not fiscal, policy. That's because, at some point, one country will need hard and another one will need loose money. And whichever one loses out will spiral out of control if there aren't fiscal transfers to slow them down or speed them up. But the common currency doesn't have these kind of shock absorbers. That means the euro not only pushes country into, but also keeps them stuck in depressions.

Think about Greece. It wouldn't have been able to borrow nearly as much money to begin with if it weren't in the euro. Its borrowing costs wouldn't have spiked anywhere near as much if it'd been able to print its own money. And it could have devalued its way to competitiveness overnight instead of deflating over years, saving itself a lot of unemployment. So why, you're probably wondering, is this part of the plan? In five words, a United States of Europe. Elites want to create one, complete with a joint treasury, but nobody else does. But they hope that will change if the only way out of the crisis they walked into with at least one eye open is to build the single state they want. It's a process that began 60 years ago when France and Germany decided to share their coal and steel—making it harder for one of them to re-arm—and it might be another 60 it ends in a European government. But that's okay, that's the plan. (Which is why, as Dan Davies points out, that Europe never expects Greece to pay it back, even though it can't say that, since everyone will pool their debts some day in the maybe-not-so-far future).

There's only one flaw in Europe's plan. It's the politics, stupid. You can't keep a country in a never-ending slump, or close enough to it, and not expect them to revolt. And when it does happen, odds are you won't like the people leading it, either. Take Greece's mainstream parties, the center-left Pasok and the center-right New Democracy. They were bastards, but they were Europe's bastards. They ruled Greece as a corrupt duopoly, you see, and they deserved to lose. But they were at least willing to do what they were told for the sake of the common currency. That includes taking turns clutching the political grenade that is austerity. As you can see above, their combined share of the vote fell from 77 percent before the bailout began to 42 percent after they started implementing it to just 32.5 percent today. Europe's strategy, in other words, hasn't just been economically self-destructive, but politically, too. Forcing mainstream parties to follow failed policies only discredits them. The same thing happened in the 1930s when the establishment was only willing to leave the gold standard when staying on it had failed as much as it could.

And, then as now, this only concedes the economic high ground to the crazies. Now, Greece might have gotten lucky if Syriza, despite its mix of former and not-so-former Marxists, turns out to be not so radical. Its demands certainly aren't. It wants more debt relief, which Greece has already gotten a lot of, and more social spending to fight their health and hunger crises. That should put Syriza firmly in the center-left, just with a little more emphasis on the left part. But if it fails, things could start to get a lot uglier. There are the neo-Nazis, who despite being on trial for murder, still came in third with 6.3 percent of the vote. The right-wing Independent Greeks, who are only a hop, skip, and a swastika away from being neo-Nazis themselves, at 4.75 percent. (Their leader, to give you an idea, made up a story about Jewish people getting special tax breaks). And then there are the real, live Communists, as in waving the hammer-and-sickle flag, at 5.5 percent. None of these are that big on their own, but if you add in all the smaller parties of fellow travelers—presumably Leninist-Marxists instead of Marxist-Leninists—you're talking about 20 percent of the vote going to the far-left and the far-right. And that's not even including Syriza.

Greece is just the canary in Europe's anti-austerity coal mine, though. Spain has Podemos, a Syriza clone that in just one year of existence is already the country's most popular party. And France has the National Front, which has gone from being a collection of anti-Semites, Vichy collaborators, and monarchists to being a collection of fewer anti-Semites and more anti-Muslim and anti-euro protesters. It's also near the top of the polls, although it would presumably lose a runoff election.

The irony, of course, is that the euro was supposed to be a paper monument to peace and prosperity that brought people together. But, for now at least, it's made prosperity impossible and driven them apart instead, reviving old prejudices, stirring new ones, and making people more, not less, nationalistic.

So much for a United States of Europe.

Matt O'Brien is a reporter for Wonkblog covering economic affairs. He was previously a senior associate editor at The Atlantic.

Πηγή: washingtonpost.com

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